VAT - buying and selling a business
If you are buying or selling a business you need to consider your VAT exposure.
If you buy a business as a going concern, in other words if youcontinue with the existing trade in place of the seller, you do nothave to pay VAT on the transfer of the trading assets.
But beware. The reason you do not need to pay VAT is that thetransfer of a business is considered to be outside the scope of VAT. Ifthe seller is advised to adopt a broad brush approach and just chargeVAT because he cannot decide if a bona fide sale as a going concernapplies, you may be denied recovery of the VAT added!
It is therefore important to clarify whether the sale is a sale as a going concern or not.
Purchasing property
Further complications can arise if you purchase a business propertywhich has an existing option to tax applied. This means that all incomegenerated by the property is a standard rated output. It also meansthat a seller may be required to add VAT to the sale price.
However the seller can avoid this VAT add-on if one of two specific circumstances apply:
* If the new owner makes an election to opt to tax their interestin the same property. This election must be made before ownership istransferred.
* If the new owner is buying the property to convert to dwellings.
In both cases there are prescribed forms to fill in and file. You can find these and full information on the HMRC website.